Building a Budget for Your Gym

Budgeting can have a negative connotation for many people since it may be mentally correlated with restriction; however, budgeting for your gym business does not necessarily need to be a practice of intense minimization and denial. Rather, good budgeting practices will help you better understand the current financial health of your business, focus time and resources appropriately, and even give you confidence when making larger purchases and investments within your fitness facility.

The methods used here are based on the building blocks of many small business budgeting programs but are broken down to be more of an imperfect science to quickly and easily give you a decent understanding and guidance on the financial health of your business. When gathering your numbers and data, don’t sweat the decimals too much; working with “good enough” numbers is fine (but it may even be recommended to be conservative and pad the numbers on the heavy side to account for inflation, errors, increases, etc.). Finally, if you already have an accountant or agency that you are working with, you can still use this method as a simple tool if you want to try looking at your numbers on your own to get a better understanding of your operations.

The content of this blog is meant to be a helpful resource to aid in getting basic business finances together. This effort can support you in getting a rough idea of your gym’s financial health and can benefit you with your working budgets. We highly recommend working with licensed accountants and business management agencies for specific or more detailed financial breakdowns, advice, and investment insights.

Over the course of this section, we will cover the following topics when it comes to building out a budget for your fitness facility:

Gym Budgeting: Where to Start?
Building a P&L Statement for Your Gym
Your Gym’s Bottom Line at a Glance

Gym Budgeting: Where to Start?

For many, the first step is the hardest: sitting down and starting. And where you start may depend on what stage your business is in.

Current Gym Owners

If you already have an established gym and are up and running, your starting point is going to involve collecting all the financial information you can get together. Similar to tax season, you will want to get all of your information into one area so you can build out some rough spreadsheets to work from. Utilizing a spreadsheet, list out your recurring/fixed costs (rent, insurance, salaries, etc.), variable costs (utilities, hourly/contractor pay, etc.), and revenue streams (memberships at each level/rate, service sales, merchandise sales, etc.). The recommended goal would be to break down these numbers at a monthly rate. Depending on the availability of information, having data from the prior year can be helpful for year-over-year, rolling average, and projection analysis as well.

Prospective Gym Owners

Since you are going to be working with theoretical numbers, the budgeting spreadsheet you make can also serve as a great template, in general, to play with cost information later when you begin considering specific locations based on costs as well as potential breakdowns on membership prices. To begin, list out categories of suspected recurring/fixed costs (rent, insurance, salaries, etc.), variable costs (utilities, hourly/contractor pay, etc.), and revenue streams (memberships at each level/rate, service sales, merchandise sales, etc.). If you have any information to fill into any of these categories, you can start there, and that will help guide you along as you begin filling in the remaining puzzle pieces of your potential fitness business. Since you are also working with theoretical numbers, you don’t necessarily have to break down your budget by month; however, if you are planning on opening a gym or studio with suspected heavy seasonality in revenue, then getting more granular with your planning may be advantageous.

Building a P&L Statement for Your Gym

Once you have collected all the numbers you will be working with, it is time to open up a spreadsheet and begin your gym’s profit and loss (P&L) statement. Although this might initially sound daunting, the basic premise is that you are calculating your fitness business’ net profits. This can be done on a monthly, quarterly, or yearly basis, but it might be best to start collecting the information on a monthly standard as you can always simply combine month’s worth of information to fit the quarterly or yearly calculations later.

So let’s jump in with this 7-step P&L process for your gym:

Operating Revenue – this is the revenue stream generated by your gym’s primary functions (such as memberships, personal training fees, merchandise, etc.). Depending on how you collected and kept your data, you may have to open a separate sheet to calculate this number by combining these factors. Keep in mind, if you are calculating multiple months’ worth of data, confirm that time frame for the other calculations as well – i.e., annual numbers divided out by 12 if you are breaking it down to the monthly level.
Cost of Goods Sold – also known as ‘cost of sales,’ this is a collection of the expenses that can fluctuate in your business that go into your core sales. Examples for a gym can include the cost of branded merchandise or supplements sold at the shop and hourly pay for employees who instruct classes or personal training sessions. The more predictable things like rent, insurance, salaries, etc., will be calculated later in the overhead section.
Gross Profit Calculation – once you have the prior two points of data calculated, you will simply subtract the Cost of Goods Sold from the Operating Revenue for the time period you are analyzing. Gross profit tells you how much money is left after paying for the goods and services sold within your fitness facility.
Overhead – as mentioned in the Cost of Goods Sold section, this is where the recurring and fixed costs come into play. These differ in the sense that they are less variable on a month-to-month basis, are predictable, and do not go into the final ‘good’ or, in a gym’s case, the final service. The overhead will include your rent, insurance, utilities, salaries, equipment, etc.
Operating Income Calculation – once your overhead is calculated, you will subtract it from your Gross Profit calculation. This calculation can be important for gym owners when it comes to their future outlook with the business since it highlights your facility’s ability to generate profit from its core operational activities.
Other Income/Expenses – this factor includes taxes, additional loan payments, other income streams unrelated to your direct business (ex., if you sublease part of your building), etc.
Net Profit Calculation – the final calculation is to factor in the other income/expenses into your operating income. This deducts all your expenses (directly and indirectly associated with your gym) from your business’ revenue. This is important to gym owners because it will quickly tell you at a glance the total profit your facility has made this month, quarter, or year.

Your Gym’s Bottom Line at a Glance

After you go through the practice of calculating your gym’s P&L statement, you are either going to be looking at a positive or negative number on your ‘net profit’ bottom line.

Budgeting with a Positive Number

If you are in the positive, that is fantastic! That shows that you are operating in a healthy manner with an abundance of money at the end of the calculated period. Depending on the amount left over relative to your revenue and expenses, you may have options for what to do with this abundance regarding a budget. Here are some considerations for budgeting with a positive net profit for your gym:

Set aside a portion of your profits to build up a financial pad over time
Reinvest a portion of your profits into your gym in the form of equipment, facility upgrades, decor, etc.
Consider enhancing or implementing a marketing and advertising budget to support well-planned campaigns for growth
Potentially plan for business growth options depending on the amount of net profits, the gym’s growth potential, and ability to reduce factors that may be limiting additional growth otherwise

Budgeting with a Negative Number

Don’t let that minus sign send you spiraling into despair; however, when you run a P&L statement and are coming up with negative numbers, it should be a wake-up call that some serious work needs to be done within your business. Although there is typically not one simple answer as to where the issue might be, here are some points to consider when running through your P&L line items in regards to a budget:

Rent – this one can be a whale and a budget breaker for many gyms. If your facility is not fully utilized, are there options to sublease a portion of the space? Is the space too large for your current daily operations? Is the location too prime, causing you to have higher market costs per sq ft? Sometimes, moving locations can be a game changer if this is the mountain you are up against.
Revenue from memberships – although this can feel like you are playing with something fragile, many times, gym owners forgo membership price increases to try to keep their members from leaving. Realistically, this can have serious financial repercussions on the business itself if you aren’t implementing increases. These negative consequences are due to the fact that your other expenses will be going up year-over-year with inflation, and if your membership revenue is not going up to help compensate for that, you are stuck with two options: increase membership numbers to offset the increase of costs or lose money over time. This is also not to say that you shouldn’t do market research as to what your local market will support for pricing within your gym’s niche; that should always be on your mind. However, clients are used to cost increases, and you shouldn’t feel like your gym is different.
Expenses – depending on your expenses, this could become a pain point. If you are hiring group trainers with minimal attendance or bringing in more merchandise than you are able to sell frequently, you may start to see this number creep up with a negative or minimal return on investment (ROI). In these situations, you can look at this root cause and begin to rethink how it fits into the business operations, the structure, and implementation, or even if it is ultimately worth keeping. Additionally, you can look for ways to help reduce costs via lower inventory, smaller runs, decreased staffing, or adjusting pay rates for contractors.

Making a Splash

Although the budgeting process may seem involved at first, for many, the hardest part of starting a budget is just that: starting. Once you collect all of your gym’s prior data points and get them organized into a spreadsheet, you will be well on your way to making sure you have a solid understanding of your business’s financial health at a glance. This knowledge should become one of the main pillars in your business planning as it helps you build budgets to properly grow your gym in both the short and long term.